There’s More Than One Way to Get Your Business Off the Ground
Prepping for a new business venture? A significant portion of any written business plan should focus on how to fund the startup and sustain the enterprise from there. If you already have a funding source in place that’s great! But if you need help to get your business off to a successful start, you must locate a funding source. Let’s talk about five you may not have considered.
Rather than having to go through the process of getting a commercial loan from the bank, consider a private loan through a peer-to-peer (P2P) lending source. P2P lending helps individuals obtain funds for many reasons, including opening a new business.
Investors and other entrepreneurs looking for a slow and steady return on their funds may want to work with you. P2P lenders are private individuals who use their own capital and cash to fund loan requests. Popular sites like Prosper allow businesses to apply for a specific loan amount — up to $35,000 and pay it back in a reasonable time frame, often up to 5 years. People wishing to borrow do have to pass certain requirements, such as:
- Review or approval of the business plan or pitch
- Verification of a good credit score (often in the 650 range or above)
- Proof a solid, verifiable income
- Payment of an origination fee
The interest rate, loan length, and monthly payment for these loans are determined by creditworthiness as well as the economic and competitive environment. Most P2P loans do not require collateral, which can be an advantage over a traditional lender.
One way to fund a new business is to do-it-yourself. Savings can be used as a down payment on a building or to invest in a product launch. Utilizing assets by selling valuable items is another way to put money into a business. Tapping into home equity may also be an option if your home will appraise above the mortgage value.
Crowdfunding is another type of peer funding. For this type of startup cash, consider spearheading a fundraising campaign online through sites like Kickstarter. Simply create a pitch and sell the business idea to potential investors or other business-minded individuals who might want to donate. Advertise the funding request via social media and other outlets to get a buzz going.
Having an incubator partner who will help get your business off the ground can be helpful. Incubators may house your new venture by providing the space and equipment that’s needed for a successful launch. The partner may also fund a lot of expenses and provide legal advice. The goal of most incubators is to provide more physical support as opposed to financial although they may still invest in the business.
Consider directly contacting an investor for help. Venture capitalists look for businesses that are innovative and have projected growth potential. One way to find this type of funding is through networking. There may be some risks in using venture capital. Most investors want to see fast, short-term results. They may also require equity ownership in the business. Be sure the business can afford the loss, should the venture fail.
It may take several methods to launch and grow a successful business so it’s important to plan and evaluate what will produce the best long-term results. Diversification is key. Explore multiple funding options to establish a secure and profitable launch. If you’re not sure which way to go, contact a financial advisor who specializes in business funding to get the right advice for your situation.
~Here’s to Your Financial Health